Buying a House Before You're 30

If you're just starting out, here's what you should consider before buying a house.

Buying a House Before You're 30


In recent years, more and more young professionals are pursuing the "American dream" by buying their first home. If you're a recent college grad or have spent a few years working and saving, you may be thinking about making your first home purchase. But is that the right step for you? Here are some things to consider.
How Buying Is Different Than Renting
Home buying experts are quick to tout the benefits of buying over renting. And it's true that buying and renting differ in many important ways -- but there are also some advantages to renting rather than buying. Here are some of the differences.
The Downsides to Buying
These are some of the things you should consider carefully before buying:
Buying means staying put. When you rent, you probably won't sign a lease longer than a year, giving you flexibility to move if you want to. But when you buy a house, you should plan on staying in it for at least three to five years, to recoup the initial costs of the purchase (around 2-5% of the purchase price). As most recent real estate markets have been dropping in the past couple of years, some buyers have found that they're staying even longer as they wait for the value of their homes to recover.
Buying means less free time. Though this isn't universally true, most buyers spend more time maintaining and improving their homes than they did their rentals. There is no landlord to call when the toilet leaks, for instance, so you'll either have to do these kinds of things yourself or be prepared to hire someone to do them for you.
The costs of buying include more than the mortgage payment. Don't compare the cost of buying to renting by looking at mortgage payments versus rental prices. Buying involves additional costs, including insurance, property taxes, and maintenance and repair costs. All these can add significantly to the expense of owning.
The Upsides of Buying
Here are some of the benefits of buying instead of renting.
You can personalize and customize your space. When you buy, you are not subject to the same restrictions found in most rental agreements. And of course, any improvements you make can increase the value of your property. You're not motivated to make those improvements in a rental, where they'll only benefit the landlord.
You get the increased value. Over time, the value of homes tends to increase (though markets face downturns too -- and values sometimes drop). When you sell, that return on your investment is yours to keep. As a renter, it belongs to the landlord.
Eventually, you won't have a mortgage payment. One of the biggest benefits of buying is that unlike renting, where you'll be writing a check every month forever, you can eventually pay off your mortgage entirely. Or, you'll be able to use the equity to buy your next house, and eventually pay that one off. And if you start investing early, the date you're done will be that much sooner.
You are allowed certain tax benefits. In addition to deducting mortgage interest and property taxes, which reduces your annual tax liability, in most cases you don't get taxed on most of the money you make from selling your home.
Who Shouldn't Buy
Buying isn't for everyone, and it's especially important to be careful about making this choice when you're young and not sure where your life is headed. It doesn't make much sense to buy if:
You plan to go back to school. Unless you're sure you're going to stay put and can afford the mortgage payment, or you know you can rent the house out and not end up underwater, now isn't the right time to buy.The same is true if you're planning any other move, like spending a year teaching in Japan or taking on an internship in Washington D.C.The size of your household may grow. It's hard to anticipate now, but your family may grow soon. If you can't afford to buy a home that will accommodate your new dog, new significant other, or new baby -- and any of these is a possibility in the next few years -- don't buy yet.You can't afford to buy where you want to live. Keep your mind open, but don't buy in a neighborhood just because you can afford it. You'll be miserable if you're a true urban dweller stuck in suburbia, for example, and you'll grow to resent the choice.You want freedom from the responsibilities of owning. Now may be a time for you to explore -- to travel or take on a new hobby. Owning a home tends to limit your flexibility, for a couple reasons. One is that you can't get out on a moment's notice; selling -- or even renting out -- a house takes time. The other is that home maintenance, repair, and improvement can be a drain on your time and finances.Can You Afford to Buy?
For lots of people, the main roadblock to homeownership is cash. Before you shop for a mortgage, make sure you have a good handle on your income and current expenses. Armed with this information, you'll be able to decide whether you can afford the amount a mortgage broker tells you that you can borrow.
Of course, if you're buying, it means you're not spending money on rent, so you can factor that amount into your monthly mortgage payment. But you need to make sure you can afford the home-related expenses above what you'd pay for rent.
If you find that you can't afford to buy the home you had hoped for, don't let your inquiry stop there. You may be able to take advantage of home ownership in another way. Consider one of the following options:
Buy with someone else. You may find a family member or friend who's interested in investing in a home with you, with you living in it and taking care of it. (You don't even have to split ownership 50/50.) Or, you may find a roommate who's ready for something more permanent. Of course, in that case, you'll want to make sure you can tolerate living together, especially because you may be doing so for awhile.
Borrow from family or friends. Instead of trying to get a mortgage from a traditional source, like a bank, find out whether you have any family members or friends who'd be willing to lend you money. The arrangement can be set up just like a regular mortgage at market-competitive rates.
Buy a less expensive property. Sometimes the key to buying is adjusting your sights. If you're anxious to break into the market, be flexible about doing it in a starter home. Sure, houses in the best school districts often appreciate the fastest -- but if you can't afford that area and don't plan on having kids anytime soon, it might make sense to buy in a more up and coming area with lower prices. And condominiums and townhouses often cost less than single family homes.
For all the information you need to buy your first home, get Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart (Nolo).

Copyright 2008 Nolo



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